Exiting the Market: Understanding the Factors behind Carriers' Decision to Leave the Long-Term Care Insurance Market. E. Factors that Might Lead Companies to Re-Enter the Market


Many of the same reasons that compelled companies to enter the LTC insurance marketplace 20-30 years ago remain relevant today. Foremost among them is the fact that LTC represents the single largest unfunded or uncovered liability during retirement and demographic trends suggest a growing need for the product. Yet it is clear from the data presented thus far, that a variety of factors have made the product in its current form a difficult business proposition for companies. The underlying risk in the product, which results in significant capital requirements and the need for a meaningful rate of return on that capital make it difficult to generate an attractive level of profit at an affordable price to support robust sales. We asked all respondents whether they believed that their own company had left the door open to coming back into the market at some point in the future. About 42% of respondents affirmed their belief that the "door remained open". When queried further, only one-quarter indicated that the chance was greater than 25% and the other 75% said that the chance was very low or that it simply was not going to happen. Not shown is that roughly one-third estimated that if they returned to the market, it would be within the next five years.

FIGURE 16. Chance that the Company would begin Selling LTC Insurance Again

Pie Chart: High (8%); Medium (12%); Low (4%); Very low (40%); Not going to happen (36%).

SOURCE: Survey of executives from 25 LTC carriers who exited the market or exited segment of the market.

We also queried respondents on what might be needed to have them reconsider their decision. We asked about regulatory, public or other policy design changes that might make it more attractive for them to again develop and sell policies in this market. More specifically, for a series of policy design and regulatory changes, we asked whether the recommended change would "Definitely", "Maybe", "Probably Not", or "Definitely Not" influence their decision to reconsider entering the market. In the survey instrument, background information was provided for each recommended change so that the respondent knew precisely what was being asked. In Table 12, we paraphrase the changes that were offered.

It is important to note that many of the changes that we asked about have been put forward by industry advocates as positive and supportive of the private market. The focus of our inquiry, however, was not on their desirability, but rather, whether they would make a difference in the decision to re-enter the market. Thus, if a respondent indicated that a particular change would "Definitely Not" make a difference regarding market re-entry, this does not mean that the change would not be viewed positively or important to efforts to support the private market.

TABLE 12. Factors Potentially Influence the Decision to Re-Enter the Market
Change Would the Recommended Change InfluenceCompany to Reconsider Entering the Market?
  Definitely     Maybe     Probably  Not   Definitely  Not   Undecided/  Other

SOURCE: Survey of executives from 25 LTC carriers who exited the market or exited segment of the market.

NOTE: It is not always clear that a number of the policy designs are not currently allowed; however, there is enough uncertainty about regulatory and tax treatment, that it might be the case that this represents a barrier.

  1. This would enable the premiums that are paid by consumers to fluctuate based on a pre-determined schedule which would be a function of a pegged interest rate. Multiple sets of rates would have to be approved by state insurance departments.
  2. The purpose is to simplify the application process, which is sometimes viewed as a barrier for consumers and also can make it difficult for agents to sell the product.
Having premium rates vary by interest rate. That is, having the ability to file multiple sets of new business premium rates the use of which is automatically determined by an external interest rate index for new business premium rates and in-force premium rates.a 4% 36% 20% 36% 4%
Having premium rates vary by interest rate. That is, having the ability to file multiple sets of new business premium rates the use of which is automatically determined by an external interest rate index. 4% 32% 24% 36% 4%
Allowing stand-alone LTC and/or combination-products to be funded with pre-tax dollars. 8% 25% 33% 29% 4%
Being able to offer other combination-products for example, disability income with LTC, or critical illness with LTC rather than just life and annuity combination-products. 4% 28% 28% 40% ---
Being able to offer a Universal LTC policy design which would allow for premium flexibility, interest crediting, cash values, age and/or duration adjusted insurance charges (current and guaranteed) for LTC, and surrender charges. 8% 20% 24% 40% 8%
Allowing stand-alone LTC and combination-products to be offered in cafeteria plans. --- 21% 42% 38% ---
Changing the mandatory offer of 5% compound inflation protection to a mandatory offer of 2% inflation protection. --- 20% 32% 40% 8%
Removing the requirement of offering 5% compound inflation protection on a combination-annuity product. --- 16% 16% 52% 16%
Removing the requirement for a minimum benefit period. 4% 8% 38% 42% 8%
Requiring all agents to get LTC education to obtain their life/health license and continuing education. --- 8% 36% 52% 4%
Changing the application to remove questions about other health coverage, financial questions, or reconfirming benefit choices.b 4% 4% 16% 72% 4%
Allowing longer Elimination Periods like 180 day period. --- 4% 44% 48% 8%
Allowing Waiting Periods for those who are insurable today, but want benefits in later years or using a Waiting Period as an underwriting tool. --- 4% 36% 52% 8%
Allowing multiple policyholders to share one pool of benefits so that benefits are not "saved" but are exhausted when used up, regardless of who uses them. --- --- 20% 72% 8%
Last-survivor policies which would pay benefits only after one spouse had died. --- --- 28% 64% 8%

As shown in Table 12, there are very few specific policy design changes or regulatory modifications presented to respondents that would lead companies to definitely reconsider their decision to exit the market. On the other hand, the ability to file multiple business rates -- which in part helps to mitigate the investment (interest rate) risk -- was cited most frequently as a change that would potentially lead to a reconsideration of the decision. Filing multiple business rates would allow companies to charge alternative premiums depending on the level of the interest rates and these premiums would be pre-approved by state insurance departments. As well, expansion of combination-products to include LTC-disability, LTC-critical illness, LTC-annuity products, or others was viewed as something that might cause companies to think about getting back into the market.

Noteworthy is the fact that one-in-three respondents suggested that allowing policies to be funded with pre-tax dollars also would lead them to potentially reconsider their decision. This is a lower percentage than those citing the ability to file multiple rates which suggests that issues related to consumer demand are less important drivers of the decision than are risk management issues; more specifically, risk management on the investment side.

Respondents were given an additional opportunity to express what it might take for them to consider returning to the market. They were asked to indicate the circumstances under which they would consider doing so. They were provided with broad categories and then requested to provide specific suggestions within each category. The categories included changes to regulatory policy, distribution approaches, policy design features, tax status, and consumer attitudes.

Figure 17 shows that product structure changes were cited most often as likely to have a meaningful influence; many of these had to do with the level-funded nature of the product, the "long-tail risk", and the fact that the product is complicated. Those citing regulatory requirements pointed to high capital requirements, as well as a general sense that carriers needed to have more flexibility in product design. Finally, consumer attitude changes that insurers felt might influence a decision to re-enter the market were focused primarily on the need for additional education so that consumers would be aware of the risks that they faced and how the product is designed to address this risk.

FIGURE 17. Circumstances under which the Company would Consider Re-Entering the Market

Bar Chart: Regulatory changes (36%); Changes to distribution (14%); Changes to the structure of the product (46%); Changes in consumer attitudes (32%); Changes in public policy (32%); Other (46%).

SOURCE: Survey of executives from 25 LTC carriers who exited the market or exited segment of the market.


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